Physiocracy and the dawn of capitalism
History of Economic Thought // Spring 2025
marcio.santetti@emerson.edu
Liberal thought
Liberal thought
Mercantilism & excessive regulation
Costs:
- Institutional;
- Intellectual.
What system of beliefs/philosophy opposes economic regulations?
French liberalism
French liberalism
Writings on France’s misguided mercantilist policies.
Pierre le Pesant de Boisguilbert (1646–1714)
- Three-point attack on Mercantilism:
Money ≠ wealth;
Agriculture;
Regressive tax system.
French liberalism
Pierre le Pesant de Boisguilbert (1646–1714)
Dissertation on the Nature of Wealth, Money and Taxation (1704)
- All the different economic activities are interrelated.
“A country can become prosperous only if exchanges take place according to the natural order of things, in which all activities are as complementary as the works of a watch.” (pp. 30—1)
- How is this order achieved?
French liberalism
Pierre le Pesant de Boisguilbert (1646–1714)
Dissertation on the Nature of Wealth, Money and Taxation (1704)
“[…] the fruits of the soil, and principally corn, put every occupation on their feet. Now their production is neither the consequence of chance, nor the free gift of nature. It is the outcome of a continual labour and of expenses paid in money.” (p. 22)
- Agriculture should be tax-exempt.
French liberalism
Pierre le Pesant de Boisguilbert (1646–1714)
Dissertation on the Nature of Wealth, Money and Taxation (1704)
Three causes for economic crises:
Excessive taxation on agriculture;
Excessive gains from exchange;
Excessive luxury spending.
Fench liberalism
Richard Cantillon (1680?—1734)
Less attacks on Mercantilism;
More focused on laying out principles;
An Essay on the Nature of Trade in General (1755).
Fench liberalism
Richard Cantillon (1680?—1734)
“The land is the source or matter from whence all wealth is produced. The labour of man is the form which produces it: and wealth in itself is nothing but the maintenance, conveniencies and superfluities of life.
Land produces herbage, roots, corn, flax, cotton, hemp, shrubs and timber of several kinds, with divers sorts of fruits, bark and foliage like that of the mulberry-tree for silkworms; it supplies mines and minerals. To all this the labour of man gives the form of wealth.
Rivers and seas supply fish for the food of man, and many other things for his enjoyment. But these seas and rivers belong to the adjacent lands or are common to all, and the labour of man extracts from them the fish and other advantages.” (p. 1)
- Definition of wealth?
Fench liberalism
Richard Cantillon (1680?—1734)
Still one foot on Mercantilism:
“[…] the comparative greatness of States is their reserve Stock above the yearly consumption…And as Gold and Silver can always buy these things, even from the Enemies of the State, Gold and Silver are the true reserve Stock of a State.” (pp. 89-91)
Fench liberalism
Richard Cantillon (1680?—1734)
A hierarchy of social classes:
Landlords;
Entrepreneurs;
Hired workers.
Fench liberalism
Richard Cantillon (1680?—1734)
“[I]t may be established that, except for the prince and the property owners, all the inhabitants of a State are dependent. They can be divided into two classes, entre- preneurs and hired workers. The entrepreneurs are on unfixed wages while the others are on fixed wages as long as there is work, although their functions and ranks may be very unequal. The general who has his pay, the courtier his pension and the domestic servant who has wages, all fall into this last class. All the others are entrepreneurs, whether they are set up with capital to conduct their enterprise, or are entrepreneurs of their own labor without capital, and they may be regarded as living under uncertainty; even the beggars and the robbers are entrepreneurs of this class.”(p. 76)
Fench liberalism
Richard Cantillon (1680?—1734)
“All these entrepreneurs become consumers and customers of each other, the draper of the wine merchant, and vice versa. In a State, they proportion them- selves to the customers or their consumption. If there are too many hat makers in a city or on a street for the number of people who buy hats, the least patronized must go bankrupt. On the other hand, if there are too few, it will be a profitable business, which will encourage new hat makers to open shops, and in this manner, entrepreneurs of all kinds adjust themselves to risks in a state.” (p. 75)
- Farmers as entrepreneurs.
Physiocracy
Physiocracy
The first school of economic thought
Physio = nature
Cracy = rule, or government by
Building blocks:
Natural law;
Primacy of agriculture.
Physiocracy
Historical background
France vs. England
Productivity of agriculture
Tax burden
Physiocracy
The founding figure:
François Quesnay (1694—1774)
Working-class background
Louis XV’s physician
Contributor to Diderot and D’Alembert’s Encyclopedia (1751) (see here)
“The wisest man”?
Phisiocracy
The founding document:
Tableau Économique (1759)
Physiocratic economics
Physiocratic economics
Devoted to the discovery of the principles of Political Economy.
Underlying philosophy:
Natural law;
Individual rights/private property.
Physiocratic economics
A reaction against Mercantilism
Q: How to react to an established economic doctrine?
A: Appealing to a higher power.
A country’s economy as a mutual-interaction system.
Physiocratic theory
Physiocratic theory
Q: What is a country’s source of wealth?
A: Its net product (produit net).
What is it?
What generates it?
Physiocratic theory
The Physiocrats’ fundamental axiom
A hierarchy of activities:
Agriculture = productive
Commerce and manufacturing = sterile
Against arbitrary price-setting.
Quesnay only observed French small-scale manufacturing.
The Tableau Économique (1759)
The Tableau Économique (1759)
Three sectors:
Proprietary class;
Productive class;
Sterile class (artisans).
An analogy between the operation of the economy and the performance of the human body.
The Tableau Économique (1759)
A simplified version:
Policy prescriptions
Policy prescriptions
Policies to encourage the accumulation of capital
Tax reforms;
Free trade.
Criticisms
Criticisms
Two forms:
Unreflective fo the facts of their day
- How come manufacturing does not create surplus?
- A “natural” justification.
Overshadowed by normative considerations
- Are Physiocrats mere neomedievalists?
- Are they reformists?